Nowadays, Indian startups are increasing rapidly, and as per the number given by the Indian Unicorn Landscape, it is making the market highly competitive. With 1,12,718 DPIIT-recognised startups recorded as of October 3rd, 2023, India has become the 3rd largest ecosystem for startups. Now, in this bustled market, if you are also an MSME, you would want to conduct your business seamlessly.
Well, here, you can leverage a unique benefit banks offer by partnering with them. It goes by the name of bank guarantee, which is similar to an LC. Let us understand what role does bank guarantee process plays in an MSME’s success.
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A bank guarantee is a three-way agreement involving you (the applicant), the beneficiary (the party receiving the guarantee), and the bank. When you apply for a bank guarantee, the bank promises to pay a specific sum of money to the beneficiary.
This is for the case where you fail to fulfil your obligations as per the contract. This guarantee helps establish trust and security between you and the beneficiary, which in turn makes business transactions smoother and more reliable.
Here is the breakdown of how a bank guarantee process takes place and what all its procedure involves:
You apply for a bank guarantee by submitting a formal request to your bank. This includes information about the transaction, the beneficiary, and the amount to be guaranteed.
Next, you’ll submit relevant documents, which may include purchase orders, sales contracts, and financial statements.
The MSME bank assesses your creditworthiness and the transaction’s viability. This evaluation typically involves examining your financial health, business track record, and the nature of the underlying transaction.
Upon successful evaluation, the MSME bank issues the bank guarantee document. This document outlines the guarantee’s terms and conditions, including the validity period and the guaranteed amount.
As per the transaction agreement, you deliver the original bank guarantee document to the beneficiary. This document ensures that the beneficiary will receive the agreed amount of money from the bank if the transaction’s terms are met. By delivering this document, you are fulfilling your obligation to the beneficiary, and the transaction can proceed as planned.
Now, let’s take a look at the benefits your MSME business will get by leveraging them.
The bank guarantee process offers numerous advantages for MSMEs. Here’s how it can empower you to navigate the competitive market:
While bank guarantees offer significant advantages, it also has added benefits that might interest you. Here are some of them which are crucial to consider:
The bank guarantee process is a valuable tool for MSMEs seeking to highlight themselves as credible establishments in the market. By leveraging this financial instrument strategically, you can access new business opportunities and ultimately contribute to your MSME’s success. But to leverage this instrument to its full potential, what you need is a reliable bank like HDFC Bank by your side.
They offer MSME bank guarantees that include an extensive network of branches for support, tailored solutions, and strong financial standing. Explore various options at HDFC Bank’s official website today!
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